Merchant Services Firms Embracing Risk Mitigation
Oct 02, 2023, 12:54 ET
Written By: Matthew Preuss
Even though economists can’t decide whether the American economy is moving toward a severe downturn, we’re seeing evidence that some of the nation’s largest merchant services providers are starting to take steps to limit their risk.
We’ve fielded calls from a number of these firms recently and answered their questions about our outreach services in order to verify the location of businesses launched during the pandemic.
Thousands of new businesses sprang up during the period, with nearly half of them based in consumer homes. Now it appears that the companies that handle their merchant accounts want to know more about who they are and exactly where.
It turns out that this is a perfect application for our nationwide network of field services professionals.
Fast growth for home based businesses
According to a study by the National Bureau of Economic Research, roughly 44% of new businesses created during the COVID-19 pandemic were home-based. This is a significant increase from the pre-pandemic rate of 30%.
There are a number of reasons why so many new home-based businesses were created during the pandemic.
First, many people lost their jobs or were furloughed, and they turned to starting their own businesses as a way to make ends meet.
Second, the pandemic made it more difficult for people to work outside the home, as many businesses were closed or operating with limited capacity.
Third, the pandemic led to an increase in demand for certain types of home-based businesses, such as e-commerce businesses and businesses that provide services to businesses that were working remotely.
As this new sector grew, merchant services firms stepped in to empower new business owners to accept credit cards. If the economy now turns, some of these firms won’t survive.
The risks merchant services companies now face
There are a number of reasons why merchant account service companies might be worried about a coming economic downturn.
While many home-based businesses were set up as pure online plays, like Amazon resellers, plenty more were consultancies started by seasoned executives who lost their jobs during COVID. However, businesses are less likely to spend money on things like marketing and advertising during a recession, which could lead to lower sales for merchant account providers.
In addition, businesses may be more likely to default on their merchant accounts if they experience financial difficulties, which could hurt the bottom line for merchant account providers.
But an even bigger concern for some companies is fraud. All of this debt is unsecured. Tough times will bring out more fraudsters and knowing all you can about your customers helps mitigate this risk.
Ultimately, that’s why more of these companies are calling on NCCI Services. We have teams on the ground in cities across the country and can verify the location of home-based businesses. Even better, we can carry our clients' offers and other messages directly to their customers, building relationships while we mitigate risk for our clients.
We’ve been a nationwide provider of compliance focused outreach and verification solutions since 1992 and we’re standing by to support your business. Find out more by contacting us today!